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disruption

October 02, 2013

This is a personal story about how I've been screwed by Skype, but I want to place it in a bigger context because it's indicative of a pattern we frequently see as companies grow. It's part of the reason that disruptive innovators often end up failing, or just becoming part of the big company institutional morass that they once set out to defeat. So, I will get to that, but you need to know what happened first.

The Short Story

I have owned a number of phone numbers, acquired via Skype, in different cities around the US and the world for about 5 or 6 years. When I originally acquired these numbers, it was a lot more important to make it easy for people to call me at my office for the price of a local call than it is today, and that was the original reason to buy them in the most important places where I have business dealings.When I first made the decision to invest in these for my business, it also made sense to get easy-to-remember numbers, so I carefully picked a set that were both memorable and had some consistency from city to city.

Today, those numbers still serve that purpose, although it has diminished importance, but after many years they have also become numbers that are identified with me, that people have put in their databases and cell phones to call me. In otherwords, they have become part of my corporate identity.

As you can see in the screen clip to the side, these numbers are advertised on my website (warning: don't try calling them -- they don't ring through to me at the moment). They're great numbers -- so good that I can remember all of them, and I can't remember anything anymore.

The subscriptions for these numbers have always been set to auto-renew, and for the most part I haven't had to do anything except make sure that the credit card attached to my Skype account was kept current.

Until now.

Last week, I discovered by accident that Skype had not renewed my subscriptions to these numbers, but instead cancelled them (ALL OF THEM), and sold them to other people. Some just within the last week or two.

My first reaction was to check my account settings and payment information to make sure everything was current (it was), except that my all my Skype Numbers had disappeared. Next, I tried calling the numbers to assess the damage (i.e. were they dead, re-assigned, forwarding to voicemail, etc.?).

To my surprise, the very first number I called was answered by a very confused individual who wasn't even sure what the number was. He told me that his daughter had just bought it for him in the previous week, that he understood my concern and would happily return it to Skype if they offered him a good replacement, since he didn't have anything invested in it. As I went through the list, I found that one of the numbers had been reassigned to Verizon mobile, but was out of service. Another seemed to be gearing up to use it for something, but seemed very surprised to be getting calls on it and hung up on me as I was trying to explain why I was calling. And, so it went. Some of them didn't answer, but none of them directed calls to me. All my numbers gone, recently sold to other people or untraceable.

Customer Service, Where Are You?

So, if you don't deal with Skype, one thing you need to know is that they make it extrordinarily hard to reach a person in the event of problems or customer service (note: this link is mostly inserted for Skype's benefit, since they appear to have little understanding of what customer service is) needs.

How hard is it? They don't have published phone numbers. You can't call them via Skype (ironic, isn't it). You can't even send them a Skype message. You can't get them to call you. You can submit data to a form and wait for them to get back to you via email (extraordinarily inefficient for a problem like this requiring explanation and urgent turnaround). Or, if you are a "Premium Customer" (I am -- that too is ironic), you can initiate a Chat session.

Of course, getting to the point where these are even options requires a great deal of determination to navigate their knowledge base through several non-obvious screens, and repeatedly saying "no, that doesn't solve my problem" -- they really genuinely have no desire to ever talk to customers. The only conclusion one can reach about Skype's attitude to service is that customers are just an expense to be avoided. Certainly unhappy ones are -- although as I found out later, Skype will communicate uselessly all day with people who are happy and use their free services. Yeah, that too is ironic.

After finding the screen to initiate a Chat session, and waiting about 10 minutes to be connected, finally there was a person on the other side. Wow! Congratulations! Do I earn bonus points for finding a real human there? Unfortunately, this isn't a game, and I digress.

Start Chat -- 10:30 am

OK, so we make some allowances here. Maybe the person on the other side doesn't really understand English. "Is it a Skype Number?" No, I'm thinking. I always waste 20 minutes trying to get through to Skype to complain about them selling my Verizon phone numbers. Take a deep breath. This is not going to be a fun session.

I'll cut this part short, because it goes on for 30 minutes. Yes, 30 minutes to verify who I am (even though I initiated the session from within my Skype account and it says who I am on the screen), verify what numbers I'm talking about (yup, all of them), and that they're actually gone. At this point, Mizpah realizes he can't do anything, and we need to escalate. So, I get transfered to the next level in the chain, and connected to my second Skype supporter.

First Escalation -- 11:00 am

Brilliant. After 1/2 hour of wasted time, and getting escalated, the conclusion is that I can't "use my Skype Number". Like there's some minor technical glitch. And notice, it's been minimized from all 5 of my numbers getting sold off, to one number that I just can't use anymore.

And, follow that up with the argumentative "We do not sell Skype Numbers ....." -- what are we trying to do here? Prepare for a legal defense, or straighten out a major customer problem? This is what you get when you escalate a support problem with Skype. First minimize, then deny that a problem exists or that Skype was even a party to the problem. Hey, we can't sell your stinkin' number -- we don't have any stinkin' numbers to sell. Nice.

After a lukewarm to bad start, we spend the next half hour going over much of the same ground, except this time I'm spending a lot of time waiting while Victor looks into my account history and consulting with others as he tries to figure out what has happened. Finally, he comes back after about 20 minutes.

Really? After an hour on the Chat line, the best "escalation" you can do is refer me to the email support team? We parry back and forth, and Victor finally senses that there is a big problem brewing, and that I'm not happy. So, rather than make me wait for an email, he goes and stands outside a manager's door. Still, I have to wait almost 1/2 hour before there is further escalation.

Second Escalation -- 12:10 pm

Now, we've been connected to Chat for more than an hour and 40 minutes, escalated twice, and accomplished almost nothing. But, Dante identifies himself as the duty supervisor (I wonder how many layers Skype, the once scrappy startup, has) and seems to have at least rudimentary grasp of the problem. Maybe this will soon be solved?

Now in retrospect, I wonder if I was like the lost wanderer in a desert who spots an oasis, and imagines it to be just a short walk away. Like maybe I was starting to get delusional. Because when Dante returns, this is what he has to say:

Gee, really? 10 minutes away from 2 hours on the Chat line, and the best you can tell me after 2 escalations is exactly what I told you to start the conversation, with a promise that someone will look into it and email me? I wonder what kind of education you need to get one of those jobs at Skype? My teenagers could do significantly better than this.

I'd paste all that ensued here, except that it contains my email address and I'd rather not spread that around too liberally, and a good deal of frustration that I originally chose Chat support specifically because this wasn't a problem that was easily solved by email, and I frankly don't trust them to get back to me. A distrust that has been borne out, as I'll get to in just another minute.

However, after insisting a few times that management really needs to step up and do something about this, and expressing my lack of faith in email support and its timeliness, I finally realize that we aren't going anywhere. This is as high on the totem pole as I'm going today with Skype, and Dante's only option is to refer me to the Billing Department.

Of course, that's ridiculous, since this isn't a billing problem, but a customer service and at this point, a customer retention (another link that is primarily for Skype's benefit) problem. What no one seems to understand is that it's also becoming a bad pr problem.

So, he tries to reassure me:

Final "Escalation" to Email -- 12:47 pm

Actually, the clip above was the last of 6 times that Dante promised that someone would absolutely be in touch via email, within 2 hours. That was last Thursday, and I still haven't heard from anyone. In total, we spent more than 2 1/4 hours on Chat, and achieved precisely nothing. The promised support via email, which I didn't believe would happen, or that if it did, would not solve the problem has further soured me on Skype (and Microsoft). Five days later, I still haven't received an email with even an explanation let along a resolution. They really don't get it.

How much do they not get it?

Four hours later, I had still not received the promised email. So, I started tweeting @Skype and @SkypeSupport. It began like this:

There were many more tweets (if interested in the whole stream, check out https://twitter.com/paulpaetz), including retweets of problems other people were having, for a while every 10-15 minutes, then every half an hour, then by the hour, until finally this one got a response almost a day later:

And, that was it. One day after I was promised email followup, @SkypeSupport refused to do anything. Not refer it to management. Not go to the billing department (supposedly the folks who were responsible for this mess). Not DM me for more info. And not respond any further. And, 4.5 days later, I still haven't received the email support that was absolutely promised 6 times to happen within 2 hours of the Chat session finishing. The great black hole of Skype customer non-service.

With each passing hour, the likelihood that this will be resolved without legal action seems to get smaller and smaller. So, as of right now, I have lost all my Skype Numbers. Skype has sold them to other people. They are not accepting responsibility for their mistakes or for fixing them. And, their support is abysmal.

How Disruption Happens

When I started this story, I said there was a bigger picture, and that there is a lesson for other companies who were initially disruptive innovators, but somewhere along the line stumble and make themselves vulnerable to the next round of disruptors.

Disruption happens when a new market entrant creates an alternative to incumbent services that is inferior in performance to one or more of the principle features valued (or thought to be valued) by the existing market. Because it is missing important dimensions of performance for the existing market, disruptions usually take hold in market segments that are poorly served by incumbents where the new product can "compete against non-consumption". So long as the entrant is "good enough" for the needs of this under-served segment and reasonably priced (sometimes being low-priced is what makes it good enough), it will win in this segment of users that are undesirable to or unreachable by incumbents. Subsequent sustaining innovations make the disruptor "good enough" to satisfy the needs of larger swaths of the low-end markets served by incumbents until the new product improves sufficiently that it can satisfy the needs of mainstream customers. At this point, if the new entrant better serves market requirements, or is substantially and sustainably lower in price, it unseats incumbents and becomes the new dominant company/product.

The dynamics of disruption are illustrated in the graph below.
Importantly, this short version of the disruption story necessarily
leaves out several critical details and glosses over the complete story of how disruption
unfolds in the market. However, it's good enough for our purposes in
discussing Skype.

How Skype Disrupted Overseas Long Distance

Skype initially did something very special in enabling voice conversations to travel over the internet as IP packets (hence voice over IP, or the acronym VoIP) for free. It didn't matter much for local calling, particularly in countries with well-established landline and cellular services where local calls already had a zero marginal cost (after the montly subscription cost), and was inconvenient because you had to place the call pc to pc (before you could call POTS lines with regular telephone numbers). But, for long distance, particularly country to country and especially overseas to India during the big outsourcing boom, being able to place free calls from a PC that could go on for hours at a time was a big deal.

So, in the beginning, despite call quality issues, Skype was "good enough" for international calls that might have otherwise cost hundreds of dollars per call, but were instead free if conducted from a pc. Over time, call quality became better, Skype was able to call real telephone numbers, they added video calling (great for all the troops overseas), and various other services were added that basically reduced the cost of long distance calls from anywhere to anywhere to near zero. And, it became a great tool for a small business like me, with things like phone numbers in other cities that I was happy to pay for. And, between Skype and my cell phone, I stopped paying for traditional long distance services a long time ago.

The one area where Skype was marginally good enough in the early days, but increasingly not good enough when compared with virtually any alternative (including the much maligned traditional telco carriers) is customer service. In the beginning, getting email support, or "look it up yourself" support was OK for most things, but problematic when there were payment issues (one issue I encountered a few years ago was refusal of payment because of overly strict anti-fraud systems -- that took more than a week and several emails to sort out) or a few other serious potentially show-stopping problems. Ironically, free users would have a virtually problem-free experience, but it was mostly the paying business customers upon whom Skype's business model depends, who would have issues requiring support -- support that when offered by email or Chat, and without the ability to find a real person, is simply not good enough.

Referring to the graph above, the point when market disruption begins in earnest is when the rate of improvement of the upstart (the lower line) intersects the line representing the pace of innovation that mainstream customers can absorb and becomes "good enough" for most of the market, though usually at a lower price or with other performance attributes that exceed the incumbents. Skype did that for the overseas long-distance market early on -- probably within the first couple of years of its existence.

But the important thing that the DI model tells us is that even though the rate at which consumers can absorb innovation is slower than the rate that companies can pump it out, they still demand and are able to use more over time. The level of what's "good enough" continues to go up. Further, this graph has become well enough known that it is often misread, such that new market entrants believe they need to stay inferior to incumbents to keep on disrupting. Of course, that makes no sense. All things being equal, when two companies employ the same core technology, no advantage accrues to choosing to stay "inferior" to the other company's products.

Moreover, once a potential disruptor has succeeded in capturing a niche, the real prize (market disruption) is upsetting the whole market. In Skype's case, that might have meant expansion into mobile and further into owning wireless broadband "pipes", and once and for all killing off traditional landlines. And, it most certainly entails consolidating market position with further sustaining innovations and service enhancements to capture the broadest possible share of the niches you pursue. Given that it is the paid subscribers rather than the non-paying ones who drive revenue for Skype and make the whole business model work, creating a working customer service and support system able to deal with the kinds of problems this article describes and having actual human beings to talk to who are empowered to fix things is critical.

Is Skype Now Ripe for Disruption?

Whether or not Skype is ripe for disruption today is certainly an open question. There isn't an obvious challenger on the horizon, although Google Voice might emerge as a real threat. But, I don't think a VoIP platform will be the next disruptive innovator in this market space. My suspicion is that if Google wins with Voice, it will be because Skype/Microsoft fell on their own swords, not because Google was disruptive.

Still, by failing to offer credible service and to expand the Skype footprint and displace the old phone networks completely, Skype has not only left the door wide open, they are practically inviting the fox into the chicken house. Not being able to protect customer numbers, or alert them when they are expiring, or process auto-payments to extend subscriptions, or to properly support paying customers when there are show-stopping issues are all evidence of institutional incompetence and what I call "scarcity-driven behaviors".

In otherwords, Skype can get away with this in the short term because there isn't as yet a pervasive good enough alternative or a ready contender on deck. There is a scarcity of places to turn to when Skype screws up. However, it is precisely when a company starts behaving like its customers have no alternatives, stops being the best solution to the customer's "job to be done", and is unable to address serious customer service and customer experience problems that it becomes an incumbent unable to defend itself against disruption.

This is precisely what happened to Blockbuster when Netflix showed up with a business model that negated all of Blockbuster's advantages of incumbency. It's what happened when Walmart showed up in small town after small town all across the country with lower prices, superior distribution and massive selection compared to what was available previously. Scarcity-driven behaviors are always a leading indicator of an industry ripe for disruption.

The lessons

Recent disruptors and long-time dominant incumbents need to be especially vigilant. In my experience, it is most often the market leaders who are recent disruptors or long-time
dominant incumbents who suffer from the hubris of believing they are
invulnerable to attack. That their strategies are exactly the right
ones. Blockbuster, Blackberry and Kodak are a few very big examples. So too is
Microsoft, Skype's current overlord, as well as Skype themselves. If you fit either of these categories, be on guard, be paranoid, and ask yourself "If I was going to attack my own company's weakest spots, where would I target".

Don't believe your own disruptive hype. Yes, you may have been successful at upsetting a market and changing the playing field, but don't forget that sustaining innovations that better support your customer's key jobs to be done are necessary both to cement your disruptive position, and also to maximize your profits. Ignoring critical pieces of the JTBD makes you an incomplete solution, and vulnerable to the next wave of disruption. (i.e. Sustaining innovation isn't a pejorative term, as many interpret Christensen's theory to state, but a necessary part of completing a market disruption. But distinguish between enhancements that add customer value and improve the experience of using your product, and those that are just bling.)

Don't treat customer service as a pure cost center to be minimized. I'm not sure I've ever experienced service as bad as Skype's before. The inability to respond, broken promises, no one to talk to, and complete indifference to the customer's problems are truly breathtaking. It would be more productive to find a cement wall with spikes sticking out of it, and start banging your head against it, than to try to get quality, caring service and fast resolutions out of Skype.

Still, it's not uncommon for companies to act as Skype did, with an aversion to supporting customers, rather than as an opportunity to build business, create upgrade and add-on opportunities, and treat users with the kind of respect that generates lifetime loyalty. It is particularly common in a number of industries where supply is constrained, and therefore scarcity-driven behaviors are everywhere. Air travel, banking, utilities, internet access and many others are notorious for poor service. Increasingly, they are reviled by their customers who use them only because they feel they have no choice. These sorts of companies fall hard.

How do you look from the outside? There are questions that all companies should ask to avoid putting themselves in the line of fire. What does your customer service look like from the outside. What are the worst case scenarios? (And, how ever many you know about, assume there are at least 10x more.) What scarcity-driven behaviors have you allowed to become routine parts of your operational model? Are there ever days or incidents when you perform as poorly as Skype did in this story?

Disruption can take years and sometimes even decades to play out. Just because you aren't threatened tomorrow doesn't mean you can ignore the signs and allow your organization to become complacent. As soon as you do, you become the target of a disruptor, and it's only a matter of time before one of them comes up with the right business model and successfully eats your lunch.

End Story

With no assistance from Skype, I managed to track down 2 of my 5 numbers, and have reacquired them in the past day. The other 3 have all been acquired by other Skype users within the past few weeks. It is now fully 5 days since the initial support Chat session with Skype was initiated, and I have not had any promised email communications from Skype or their billing or support departments. It was only through good luck that I was able to track down 2 of my lost
numbers, and it required a lot of effort to find them and get them
back. And those 2 numbers could easily have been taken by someone else anytime in the last few days, further exacerbating the problem.

Obviously they haven't taken any responsibility -- despite acknowledging in the Chat session that their records showed my account was in good standing, that all my services were set to auto-renew, that they had a valid email for me (which I used to reacquire the lost numbers, and at which I received emailed receipts from Skype), and that I was never notified the numbers were expiring or that payment was due -- and have done nothing to mitigate the damages to me. The lack of action makes me wonder whether they actually believe this is a closed matter, or whether it's fallen into their black hole and isn't on anyone's to-do list for follow up.

By the way, if you want to help me get Skype's attention, please feel free to use the links below to tweet this article or share it on Facebook. If you have your own service nightmare stories to share (with Skype, or other companies), please add them to the comments below.

October 10, 2008

Paul asked me to write about the Flip Camera. And as his last article stated, I have been a big fan of the Flip Camera for a very long time now. Here I present my case for why I believe the Flip Camera (and the type of product it represents) is more than a blip on the radar.

Q: How is the Flip camera "good enough" to cause unexpected market disruption?

The first thing I look at is what you CAN'T do with a device. If the list is long or "critical" enough, the odds are that the rest of the industry won't see it as a competitor and will be blind to the disruption that it represents.

You can't plug in a professional external microphone

You can't change the aperture or adjust the levels in any way (video or audio)

The zoom is too feeble to enable any filming from any real distance. You basically have to be in their face

You can't add in new lenses or later expand the camera

You can't take "professional" quality footage with it

Looking at the list above, I realize why so many dismissed the camera. But then I think of YouTube. Watched anything on there lately? Most of the videos on there are shot with a WebCam that has WORSE quality, no controls and mediocre audio at best. Hmmm.

Let's look at what this device CAN do.

The pricepoint has driven the entire market lower ($135).

Size is critical. It fits in a pocket or a purse and doesn't add much weight. You can ALWAYS have it on hand (not quite as easy as if it was on your cellphone)

Ease of use is critical. Turn it on and you are ready to record
in less than 2 seconds. Just press one button and the same button to
stop.

Quality is NOT critical, but must be "good enough" and I believe the Flip is just that. Good enough. Limited zoom and full frame rate, 640 by 480 video with decent audio.

The software that comes with the camera is anything but the greatest editor. But the fact that you can edit clips together and upload right to YouTube is quite neat for many users.

Q: Where is the Flip driving new innovation and creating new value/opportunities?

More and more cameras record to a chip nowadays. And just about
every manufacturer is working to make getting the photos or footage
into your computer easier. Cables are generally included with the
camera. Some cameras offer accessories for you to remove the chip,
plug it into a device and then plug the device into your USB port.

Flick a switch on the Flip and the USB connector emerges. You plug the camera directly into your computer. Done.

But this is not the innovation I want to speak of. This is a cool feature, but the real innovation is that the Flip Camera comes with the software to edit your videos embedded on the camera itself. There's no CD to install. You connect the camera and everything you need is on it. You launch the application off the camera.

What the Flip does represent is a rather significant potential to revolutionize how we think about products in the electronics category - (I took a stab at this on my blog). To date, electronic products have been either a piece of software or a piece of hardware. Many pieces of hardware came with software or drivers to enable us to interact with them, but the feeling was that we were purchasing the hardware and the software was often not a required component.

The Flip offers a glimpse of a future where software is seen to be an integral part of a device because it is fully contained within the product. I can easily see a future where we start interacting with products and not the other way around. The day when our PC's capabilities are actually ENHANCED by owning a piece of electronics. My new Bravia Entertainment Platinum TV now allows me to access live streams of new shows a day early off any computer in my house. Or the fact that I bought a new scanner means I have access to enhanced faxing and photo editing from any machine on my network, without having to install any software. The software just appears because the purchased device is on my network. Electronic devices become a gateway into enhanced functionality that is related to the device but operable on other platforms and tasks.

We talk about the blogosphere as being a conversation, and when it approaches that, it gets really interesting because there's something about the interaction of ideas and differing opinions that makes us learn more than listening to the master speak. But, truth be told, most blogging is more like listening to the master than it is engaging in conversation.

I think part of that is because it always starts with the author's ideas, and we don't know and trust and relate to the person on the other side of the conversation so much, so even when you get commenters actively participating, it's still more like a teacher and a classroom, with the original blogger owning the discussion. Except in the classroom, flamers and haters and fanboys and lurkers aren't tolerated. But that's another story.

Meet Sean

So, on a completely unrelated thought, I had been talking with a blogger friend Mr. Craphammer Sean Howard several months ago about the Flip Video camera and why it was pretty cool and why he thought it was probably a disruptive innovation.

Sean is a marketing/branding/digital and social media maven who has started to grok disruption, and he gets pretty passionate about stuff that interests him, so we've had some very interesting discussions about what enables disruption, when and how it happens, whether a company or product is or isn't, etc. I've often thought that it would be pretty cool to capture us sitting over a couple of beers shooting a disruptive breeze because there's a lot of creative energy and interesting ideas that come out. Or, it could also just be that after a few of those 8% beers from Quebec, everything seems more interesting. It's hard to tell.

So, Sean was pretty excited about the Flip and was using it for a project he was working on, and intellectually I could see it, but it wasn't my cup of tea. I'm a guy who likes full control, hi-def and all the knobs and dials of a full-featured video camera, so the stunning simplicity of Flip was interesting in the abstract, in the way you say "That's interesting" to someone when you want to change the subject. But then I got thinking -- why not ask Sean to talk about the Flip on my blog. He knows what's cool about it, and understands disruption well enough to offer an interesting perspective.

But, when I asked him, he said "No dude. You frame it. You know this stuff and write it so well. How about I just provide quotes and insights as a user?". Hmmm. Well maybe, but that didn't seem nearly as compelling as having the guy who gets it write about it.

Then a Conversation Started

So he sent me a bunch of stuff by email, and I responded with some "yeah, buts..." and we went back and forth and then spoke some (yup, a real live telephone chat for those who can barely remember when we actually used to speak to people and call that a conversation), and then I thought -- hey, this is pretty neat. Why don't we do this online and open it up for others to listen in and participate with comments and questions.

So that's what we decided to do. I made Sean a guest author, and he's going to post the original notes he sent me, and then I'll post what I said back in a day or so, and we'll try to carry on the conversation through comments and back and forth posts.

I'm looking forward to seeing what kinds of thoughts and questions get raised, and wondering whether there will be disagreements or other ideas thrown in the pot.

October 02, 2008

A common problem I've noticed with potential disruptors is that they have initial success breaking through the noise with a disruptive idea or a disruptive message supported by underlying authentic persona or product, yet as soon as they get the attention they so desired, they start to be criticized by the mainstream pundits for being different or lacking in some respect. So, they immediately tone down the disruption and start trying to appear mainstream, middle-of-the-road, mediocre and above all, not different.

This happens with companies all the time as they mature. They do what MBA schools everywhere teach you to do. You had a disruption. You quickly moved to market leader. Now milk it for maximum profit.

To many, this means optimizing internal efficiency of the business, stripping out costs and uniqueness (because uniqueness carries a cost) to produce goods and services with the highest (theoretical) margins possible. There is a rush by competitors in a marketplace to copy each other's features in a race to the middle where all rough edges are sanded off, nothing is controversial, nothing is extreme. Everyone runs focus groups (which, by the way are worse than useless for pointing to the future and helping with disruption), and all the focus groups tell them exactly the same thing, so they adjust their messages and features and benefits to conform to a mass mediocrity with features that no one really values. All this to maximize their market and appeal to the broadest possible audience. Ironic, isn't it?

This is the conventional wisdom. Get noticed for being different. Move to the middle mainstream as fast as possible. Unfortunately, when it comes to disruption, the conventional wisdom is almost always wrong.

Without a doubt, if Mr. Obama wins the presidency, he will usher in a new post-racial era in American socialization. It will be no small accomplishment for the first African-American candidate to reach the pinnacle, and become the world's most powerful leader. He has promised change, and certainly in the early days of his campaign, the media and methods by which he delivered that message seemed to resonate as authentic and pure. He had disruptive convictions, and disrupted the primary process. He came from behind as the dark horse visionary, upsetting the Democratic party establishment to win the nomination. He got people excited.

All was going swimmingly, when suddenly a new disruptive force was thrown into the fray. Governor Palin has succeeded by disrupting and disarming at each step of her political career. Unseating incumbents for mayoralty and governorship, taking on her own party's establishment by going direct to the people and espousing a populist message that resonated. Unseat corrupt politicians. Throw out fat cats. A hockey mom indeed, with both charm and grit. If the McCain ticket wins, she'll be the first female vice-president, a populist voice from an outsider state, and will change presidential politics forever just as Obama will if he wins.

Both Obama and Palin were effective in disrupting not just because of their color or sex (although those characteristics are highly symbolic of the change each represented), but because there was authenticity behind the message and symbolism. Neither sought approval of the political establishment, but went direct to the people with powerful ideas representing radically different directions.

Enter Mainstream Spin Doctors and "Handlers"

When disruption is successful, it starts with an unmet or underserved need in the market. The electorate is tired not just of the idiotic "sound bite" bickering in Washington, not just of George Bush, not just of the inability of Congress to get anything done except make sure they break for holidays on time and get their indexed paychecks and pensions, but increasingly of the lack of vision, lack of principle, and destructive actions or inactions that have gotten the country into the mess it is.

Perhaps the most intensely partisan don't feel this way, but certainly everyone without party allegiance does, and many who identify themselves as conservative or liberal, republican or democrat, do as well.

How bad is it?

For the past two weeks, our country's financial system has been on the verge of a train wreck, mostly caused by Congress pushing Fannie Mae and Freddie Mac to be social tools of government, putting poor and high-risk people in houses they couldn't afford. This pressure from Congress resulted in a bonus system set up in those quasi-governmental corporations which highly incentivized executives for the number of loans underwritten to the poor, rather than the financial prudence of those loans, which of course led to massive corruption and a blind regulatory eye. Corruption in false appraisals, unethical mortgage brokering, fraudulent resale of bad paper, and the packaging and hiding the trail of all those bad loans into securitized products that we all got suckered into buying unknowingly through our 401(k)s and mutual funds. Criminal all around, and not much different from the engineer of a passenger train in LA who caused the worst train accident in American history by texting on his cell phone instead of watching the signals.

While this financial train wreck has been gathering steam, political "leaders" have tried to put together a bailout package, initially that completely picked the pockets of the American taxpayer, but without any upside or guarantees that credit markets would unfreeze. Going through several iterations, it's now almost palatable, but still a horrific penalty for those of us who had nothing to do with it to pay. People like me, in fact, who borrowed responsibly, had significant equity, didn't use my house as a piggy bank, and will never get a penny of relief -- the great hard-working and responsible middle-class being ripped off by both the rich and the poor. And, for what has seemed like an eternity, and with another 10-15% of stock market value erased, politicians have dithered, spending their time blaming each other while claiming to seek a bi-partisan solution.

I suspect there are a lot like me who would just as soon seen the entire house and senate fired and replaced with new blood. Unfortunately, that can't happen. But that zeitgeist is what creates the great unmet and underserved needs of the voters.

We need honesty, integrity, authenticity, people who are working for us rather than themselves. People who aren't trying to line their pockets with lobbyist dollars. People who genuinely want to fix Social Security and the tax system, eliminate corruption, defend the country and its freedoms appropriately, regulate as necessary to ensure fairness and consumer protection, but not over-regulate. Eliminate the dependence on foreign energy supplies that not only threatens national security, but introduces immense instability into our financial markets whenever some tinpot dictator wants to throw his weight around. Throw the entire health system in the garbage and start over. And lead with vision, creativity, thoughtfulness and energy.

We need disruptive change.

So that's the foment into which we have not one, but two potentially disruptive choices thrown. At first, Obama seemed fresh, new, articulate, genuine, of the people. He used modern tools like blogs and texting to go direct to the people, bypassing the political establishment. As a result, he generated excitement and fanatical fervor. He disrupted the Democratic party establishment and ultimately won the nomination over the hands-down favorite, Hilary Clinton.

McCain, yesterday's maverick, lacked energy and appeared dispirited and fast on the way to losing. Of course, he had an albatross necktie in George Bush, the most unpopular president ever, but that didn't account for his own relegation to the sidelines as old news while Barack seemed the heir apparent.

McCain knew that he needed a disruption of his own, and went with the brilliant choice of Governor Palin as his running mate. Another fresh face, untainted by Washington politics. High energy. Another historic choice, guaranteeing that no matter who wins the election, we will either have the first black president or first woman vice president. She shook things up quickly with her personality and charm and track record.

Then they got "crammed" by the mainstream

Obama was first. He became imperious, arrogant, above the people not of the people, elitist, clamping down on innovation, touting the party line and the same repetitious negative mantras we've come to hear from every politician before him. When questioned about specifics, he dodged the questions, having been advised by handlers apparently that all he had to do was say nothing to win. Saying something affirmative about his plans was a risk. When challenged, he began changing his position on every issue of significance, moving towards the middle, but in a non-specific enough way that we now have no idea what his intentions are if he wins. All the positive energy of change, the disruption of authenticity, of talking and listening to the people, of any semblance of integrity was lost in very short order. The mainstream owns Obama, and any likelihood of disruptive change was flushed down the toilet. He's just another political hack who wants to win at any cost.

Next was Palin. This has been painful to watch because it's happened so quickly. She was disruptive because she was of the people. Her accent was annoying to many, but undeniably of a place. Many mocked her as sounding stupid, or said she was inexperienced, but in reality it was mainstream carping, both from the political establishment and the media. Her accomplishments actually were the sort that matter to the electorate. Balancing the budget, reducing expenditures, selling off unnecessary luxury assets, attacking corruption. All the while succeeding against the odds -- unseating an incumbent governor from her own party from the position of mayor of a small town. Palin was the living embodiment of Ms. Smith Goes to Washington.

Most of all, what the people, as opposed to the elites, liked about her was her authenticity. She didn't know everything, by any stretch, but that didn't matter. She was trustworthy, not because she had 30 years of experience with foreign governments or because she knew how to work the backrooms and do corrupt deals to move legislation along, but because she didn't. Amazingly accomplished in her short career, untainted, she had demonstrated real leadership, and an ability to take on challenges bigger than herself and win. The kind of leadership that's been missing in Washington for a few generations. Heck, she could have been running for president for all the masses cared.

But then the handlers got a hold of her. She wasn't allowed to change her convention speech script, which quickly made her sound contrived and programmed. She was locked away from the media to be groomed so she'd know exactly what to say and how to handle the gotcha questions. And the net effect? When finally allowed out of the room to do an interview, she didn't sound herself. She was too cautious, too much "on message", too scripted, yet not well enough prepared. In a few short weeks, the mainstreamers stripped her of the number one quality that made her popular -- her genuineness, her hockey-momness, her rural up-country sound and attitude, her authenticity.

Dissatisfaction is Run Amok

So, the things we most liked about Obama and about Palin are mostly gone now. Obama has no chance of redemption -- he is thoroughly a politician, cut from the same cloth as all that came before. Disingenuous, contrived, manipulative, truth distorting, vote chasing, deceiving, power-hungry, willing to say or do anything to win. No longer any potential to disrupt in any way. We saw this most plainly in his and House Speaker Nancy Pelosi's message manipulation around the financial crisis to finger point at the republicans while claiming they were the ones being bipartisan. Excuse me, Ms. Pelosi -- bipartisanship, by definition, is a two-way street, both sides share in credit and/or blame. You can't be bipartisan if you're blaming the other side. I resent you playing games with the financial health of my country to gain political points. And, rather than assume a leadership role, which would have involved some risk, and by the way, proved that he had what it takes to be president, Mr. Obama chose to "phone it in". They just don't get it.

Ms. Palin has gone a long way down the same path, as her stumbling in the media interviews clearly demonstrates. But she has one last chance to disrupt this election in the vice presidential debate tonight. If she returns to being herself, is willing to speak off the cuff, throws off all the trash that's been loaded on to her by McCain's handlers, and is willing to make a mistake or two to make a point, then she will disrupt, and I predict the McCain ticket will win because of it. If she does not, they will lose.

Hard to believe it all comes down to this, but that's the way disruption works. You gotta be authentic. You gotta know what you are and be true to it. You can't be everything to everyone, unless you want to be nothing to anyone. Yup, I said it first. This is Governor Palin's election to win or lose, and it all comes down to whether she's given in to the mainstream, or whether she chooses to go with what got her there in the first place and disrupt the status quo.

My advice to Sarah? There is no shame in being who you are and making a mistake that takes you down in defeat. There is a lot to be ashamed of if you sacrifice your integrity because you think that's what it takes to win. Go back to square one, and be yourself. The electorate still wants change, and will vote for the side they think can deliver it and truly represent them with, regardless of the last two weeks. If neither side offers genuine change, then the Democrats win by default, because it was always theirs to lose.

It Works the Same for Disruptive Innovators in Business

You have to start with a product that resonates. You have to meet an unmet or under-served need. Both Obama and Palin resonated with the electorate, although in very different ways. Then, you've got to stay true to your message. If you are the creator of the most desired and elegant products on the planet, as Apple has become, then you have to keep doing it. That's what your audience values, and it's why they buy from you. If Apple were to drop a bomb on the market like Microsoft's Vista, how long do you think we'd respect them for? You can't race to the mainstream middle and still be a disruptor. You have to continue to resonate.

Full Disclosure Section

I am a supporter of neither republicans nor democrats. I'm that elusive independent sort that everyone is chasing. And, that's why all this matters. Those who are allied to one or the other party have already made up their minds, and they are split 50-50. And, that's why disruption is playing a role. It's people like me that are going to decide this thing, and we don't care about political dogma, in fact, we despise it. The sooner you stop repeating the same tired lines, drop the "speaking points" and tell us what we want to know, the more likely you are to win. And, don't forget the genuineness, authenticity, integrity, trustworthiness, leadership, and being willing to stand for something and mean it.

September 29, 2008

Over time, The Anti-Marketer has evolved from being a catch-all for anything about marketing to being more about disruption, disruptive business strategy and analysis of disruptors. While related to what I want to cover here, that was never supposed to become the main focus. This is supposed to be about disruptive marketing strategy and what not. On the other hand, I have an increasing amount I want to cover on identifying and scoring disruptive potential. So, we had to do something about that.

If you've noticed the bigger spaces between recent posts, part of that has been because I've been working on a solution to the above problem and launching some new projects at the same time. Now I'm officially announcing the first outcome of that thinking and work. A new blog, Disrupt This, was begun about a week and a half ago. It seems to be stable, with the moving parts connected, so I want to let everyone know and encourage you to have a look.

More focus

The biggest reason for starting Disrupt This was to increase focus. Basically I felt that the subject of marketing strategy for disruption was getting short shrift, because to tell the whole story, I needed to go into expansive detail about the connection to business strategy, and I wanted to give a "disruptive or not" assessment, which required a lot of explanation, and often very long articles when covering something holistically.

But the business side wasn't getting full coverage either. For example, I wasn't spending any time discussing why disruption is important -- what does it mean to entrepreneurs, investors, companies whose industries are being disrupted, shareholders and employees. I needed a place to talk about the value created by disruption, and how business strategy creates that value. And, I wanted to provide more of a framework for assessing and scoring disruptors objectively.

So, Disrupt This will be that place for objective business analysis: scoring, investment opportunities, connection to business strategy, disruptive or not assessments, and how disruption works.

And The Anti-Marketer?

The Anti-Marketer is still going to talk about disruption, but increasingly the marketing side: how marketing strategy drives disruption, techniques and handy tools, and examples of companies doing it right and wrong. From time-to-time, it will stray off subject into the broader world context, but mostly it will be about disruptive marketing.

There's more about it over at Disrupt This. In fact, there's already a couple of posts there to catch up on. I hope you'll like it as well as you've enjoyed reading The Anti-Marketer, but I'm guessing some will prefer the content here and others will move to the new blog and bookmark it as your favorite source for disruptive content. And, if it works out, you should start enjoying some shorter, more focused articles.

July 09, 2008

A little over a year ago, Howard Schultz, then chairman of Starbucks wrote an internal memo lamenting the loss of Starbucks' distinctiveness and wondering whether in the mad rush to expand and grow ever more operationally efficient (as measured by speed and same-store sales increases, rather than quality of experience), the company had lost a bit of its soul. This memo was reported in all the major business papers and spurred a flood of blog postings from Starbucks critics and fans as Schultz seemed to have captured what was on everyone's minds, although still at that time, a largely unspoken feeling.

I too wrote an article taking a very different slant and documenting how and why Starbucks had allowed itself to evolve from being the market disruptor to the disruptee as a number of major foodservice chains began to compete on many of the now commoditized (and watered-down) features of the Starbucks experience -- better quality coffee, much lower price, more inviting workspaces to stay the afternoon and work or lounge, free WiFi, faster service and so on.

Through the remainder of 2007, it became increasingly clear that the days of heady growth, at least in North America, were indeed over, and that Starbucks competitors were taking direct aim at the weaknesses in Starbucks' business model armor that had crept into their operations over the preceding 10 years. The company still looked healthy on paper, with year-over-year revenues in 2007 22% ahead of 2006 and record net income (profit), but trouble signs included dramatically slowing same-store sales growth which had clearly reached a limit, and a large number of customers opting for the improved, more widely available and cheaper coffee solutions of the competition as I predicted in last year's article.

Additionally, by the end of 2007, long-time Starbucks loyalists were increasingly grumbling about what was wrong with the company and voting for change by going less frequently, or going elsewhere entirely.

Hello. My name is Howard. Remember me?

As if sensing that the tide of success was turning against his prodigy, Schultz moved back into the driver's seat at the company he built in January 2008, reassuming the CEO role and announcing a return to the basics of Starbucks vision and identity. While acknowledging that the competitive landscape was different, Schultz asserted that the problems at Starbucks were internally generated for the most part, and that the solution lay in self-examination, putting the primacy of the customer experience first again, and getting back to the core mission that had made Starbucks successful in the first place.

In last year's article I identified several signs of disruption and difficult decisions for Starbucks to avert or at least parry with the competition disruption that Starbucks own mistakes had enabled (although in their defense and viewed from an internal "operations" perspective, these would have been perfectly logical innovations to improve efficiency, profitability and leverage the brand through extensions). These included:

pre-bagging coffee beans to preserve freshness (in the process, killing the distinctive coffee smell of an authentic neighborhood coffee bar, and the sensuality of sounds and sights such as scooping of beans, weighing and pouring them into custom bags, etc.)

expansion of chain to be almost as ubiquitous as McDonalds (turning them into a "true chain" experience, common but still expensive)

conversion from manual expresso machines to automatic to improve speed, efficiency and consistency of coffee making (at the expense of smells, theatre and "hand-made" quality)

undoing the conversion of coffee bars into retail emporiums, restoring the "third place" ambiance and experience

improving training

getting rid of automatic espresso machines that made Starbucks just equal (in perception) to the lower-priced competitive options for many consumers

acknowledging that new "low-end" disruptors (McDonalds, Dunkin Donuts, local gas stations) selling fresh-brewed espresso at 25% of Starbucks price changed the game and required a specific competitive response

closing stores because the "coffee aficionado" market was already over-served (in the US market) given "good enough" competition at much lower price points

It's important to note that a few of these are counter-intuitive (at least to most by-the-book MBAs), and options that most businesses wouldn't consider. For example, when I discussed the installation of automatic espresso machines last year, it was noted that the original decision to do this had cost millions of dollars, and replacing them would potentially both slow down service and retire perfectly good equipment before it was fully depreciated and had reached its natural end of life (although the equipment was a "sunk cost", most businesses that had made such a decision in the first place would not easily reverse it and incur additional expenses to restore an "experience" and recreate the lost competitive differentiation.)

The Clover Coffee Machine will elevate the quality and freshness of regular brewed coffee to the premium level that coffee enthusiasts expect, but not so for Starbucks espresso coffees, which will be even more automated than before with the Mastrena, reducing baristas to button pushers. Click on the image to read how the Clover system works.

get rid of breakfast sandwiches by end of 2008 (announced Jan 30), to eliminate strong smells that compete with coffee

slow pace of new openings and close 100 underperforming stores in US (announced Jan 30)

stop reporting on year over year same-store sales growth (announced Jan 30), which could only be achieved in long term by continued dilution of brand experience through increased retailing options

acquisition of The Coffee Equipment Company for its Clover brewing system -- a method which creates a vacuum to suck the steeping coffee through a filter to create an individually brewed cup similar to French press (which pushes the filter through the steeping coffee) to create a superior flavored cup of "traditionally" brewed coffee, with enhanced richness and body (announced Mar 19)

introduce Mastrena espresso makers to replace current generation of automatic machines. (Although Schultz announced this, development of this machine, exclusive to Starbucks, was underway for 5 years.) Billed as enhancing the theater (because you can once again see the barista over its lower profile, and offering more control, it is still an automatic machine whose exclusivity doesn't address the quality and theatre lost with the old manual machines. (announced Mar 19)

Close 600 under-performing stores (up from only 100 under-performing stores in January). 12,000 employees will lose their jobs. (announced July 01)

Overall, the emphasis of these changes is essentially the same as the recommendations I made last year, with the exception of two key points, which I'll discuss below. The stated purpose has been to bring back the sense of theater, enhance the Starbucks experience consistent with brand expectations, put the emphasis back on coffee and hopefully undilute the brand identity. Unquestionably for drinkers of traditionally brewed coffee, the use of Clover machines to individually brew whatever you want from fresh ground beans (rather than chose from one of the three pre-selected coffees of the day) is a large improvement. Closing stores was expected because Starbucks was overbuilt, although Starbucks is blaming closures on the economy.

Is it the economy stupid, or is it really disruption?

For the first time ever, Starbucks has experienced a year-over-year decline in same store sales. The economy explanation has been picked up and widely reported in the media (because it fits the story that they want to report), but we have a hard time believing that Starbucks drinkers are consuming less coffee because of the price of gas. More likely the economy is providing an incentive to the most price sensitive of Starbucks customers to switch to cheaper McDonalds or Dunkin Donuts alternatives, accelerating a trend that would have inevitably have happened anyway, due to the increasing availability of good enough low-end alternatives. Starbucks claims to have done research that disproves this, but we think they'd be wise to ignore the research, which is harder to prove than this more rational explanation. Once people make peace with the mental switch from a high-end to low-end disruptive product rationalizing that the low-end low cost alternative is good enough, they rarely go back.

The two things in the list of strategic changes that Schultz has implemented that are still at odds with "undisrupting" Starbucks are the switch to Mastrena ultra-automatic machines and not fully addressing the low-end threat for what it is.

While the Mastrena may be an improvement in visibility of the barista and enabling them to participate in the experience for the customer, it is still an automatic machine. In fact, it automates more of the process, not less. The supposed expertise of the barista is therefore non-evident -- they can't do any more to improve the espresso shot than can the cashier at McDonalds. The emphasis of the Mastrena is on higher volume (operating efficiency), and any qualitative difference in the cup of coffee between it and the Verisimo machine is so minimal, it is unlikely to be noticed by the majority of caffeine addicts patronizing Starbucks.

This is a key element, because in no way does the replacement of old machines with the Mastrenas differentiate the end product or in the consumers' mind justify the higher price for Starbucks versus their competition. Proprietary is not equal to different, and this is a sustaining innovation that reinforces that Starbucks has overshot the needs of their customers, but yet still underperforms on a key dimension -- the expectation of a quality hand-crafted coffee. An expectation that Starbucks created, but has now walked away from.

Secondly, Starbucks gives the appearance of continuing to be in denial that speed and price are performance criteria that a large percentage of their customers deem important, and that many will sacrifice the brand image of Starbucks to get a good enough cup at McDonalds. Admittedly, this is a very tough line to hold, since through its chain-store ubiquity, Starbucks has ceased to be a unique neighborhood place, becoming instead the middle-of-the-road McDonalds of premium coffee. The only problem is, McDonalds is better suited and better able to be the McDonalds of premium coffee.

How then can Starbucks respond? Can it be different enough to continue commanding a huge price premium over its competition? If not, will business continue to siphoned off by low-end disruptors? Is there a counter-disruptive response that allows Starbucks to not concede the low-end to McDonalds and Dunkin Donuts while maintaining its higher end niche for hard-core loyalists? Will Starbucks realize that the Mastrena is masking the real problem and that by positioning it as an improvement to the coffee experience, may actually lose more customers as it rolls out (if there is no taste difference, has Starbucks reached the limits of innovation in the core experience). Will they recognize that purists want a manual shot pulled, or minimally a semi-automatic (because the barista has more control than with a fully automatic)? Can all these needs co-exist?

While we must praise Schultz for the aggressive return to Starbucks origins and a stronger vision, the question now is has he gone far enough, or is the past year a harbinger of much greater disruption to come? Or, has he recognized that disruption is the problem, and there are more surprising announcements to come as a result?

More importantly for investors, is this the end of Starbucks as a growth stock (SBUX - click to see performance over past year compared with Dow Jone and S+P 500), or at about 1/2 the valuation of a year ago, and still dropping, is it a buying opportunity? Wall Street has been betting against a return to the days of heady growth, but does it have to be that way? I don't think so, but it requires disruptive imagination to see a way out. Perhaps Schultz sees it too.

June 27, 2008

I have to say, once you miss a couple of post times, it's really easy to let blogging slip as a 3rd tier priority. Now, here I am, 7 months later, needing to thank my loyal readers again for their patience and sticking with me. I guess I should just acknowledge that my efforts will be intermittent, and then make a best effort to not be.

This time, the habit got broken when I started an intense contract that within a few weeks, quickly crowded everything else out. At the same time, I was taking Vicodin to help ignore my broken foot, which both made it harder to concentrate on work, let alone a blog, and made me fall asleep much too readily. I know -- excuses, excuses. To get back in practice, I've been posting some comments on other people's blogs, but now the juices are flowing and it's time to get back at my own.

Hint: Vicodin Can be Very Disrupting

Lot's has happened since my last post, as you might imagine, and I'll be trying to bridge the gap as I go along. I have some important news to share as well, but that will have to wait a few more weeks, so just know that something exciting is happening soon.

Since I've been out of touch a while, these first few posts back are going to be lighter than usual, and round the circle on some old things before I move onto weightier material.

American Idol Redux -- How did we do with the analysis and predictions?

My old guilty pleasure, American Idol, ended a few weeks ago, and I got to reflecting on the dynamics of the show itself and whether an article I wrote just before last year's finale would prove to be prophetic on review. I talked about how AI was being disrupted, and the producers were either ignoring the problem, or didn't get it. In my analysis of why, I offered some prescriptive changes that they needed to undertake to avoid an otherwise inevitable fate. So, how did I do?

American Idol rules the roost; as #1 rated show, it has become complacent and resistant to necessary change and highly susceptible to disruption

Any changes have become largely cosmetic (incremental "sustaining" innovations), and they've "overshot" the audience needs on the "slickness dimension" and no longer approximate an "authentic" experience

The reality that creates ratings for Fox is that only a couple of the top 12 are actually good enough to have a chance at winning. The rest are there to become the train wrecks we want to vote off, to sass back at Simon, to sing gloriously out of tune and make us laugh, to impress with their self-absorption or self-delusion or just plain wacky personalities, to do whatever they do with Paula, and most of all, to give the audience time to get to know the eventual winner and build a following to buy their records.

The ruse being perpetrated is that the show is really a singing competition, when in reality the producers have constructed a promotional stage which sells lots of advertising (because of the entertainment value in seeing train wrecks get voted off the island) and a vehicle for selling pop records, crafted in the form of a quasi-reality show

A large minority of the audience has seen the wizard behind the curtains and tired of the deception, and using the power of the web, started to turn the tables on the show's producers, exposing the sham and actively working as a block to "Vote for the Worst", keeping the train wrecks going as long as possible at the expense of singers that the judges and producers actually wanted to "win". Last year, this resulted in the best singer (by any objective measure) being voted off early and two mediocre performers making it to the finale. The resulting winner's album was awful, and sold miserably (opening week sales for Jordyn Sparks first AI record were less than 1/2 same stat for Fantasia, the previous worst-selling AI winner, and only about 40% of the same stat for Taylor Hicks, who was generally considered a bomb and was dropped by his label).

The voting system that Idol uses is suspect to begin with. By asking the audience to vote for their favorites, and as many times as they want, they have created a system which generates revenue but can't reliably identify either the best singer or the audience favorite(s). Even superior voting systems (audience votes for the worst and the person getting the most negatives is eliminated, one vote per person, one ballet with yays and nays for all contestants tabulated, it is open to manipulation, but the way it is, the best singers and performers are routinely voted off several weeks too early.

Because of the above, the grand prize of a recording contract has become meaningless, and even a bit of an albatross. The contestants voted off early routinely get recording contracts and outsell the winners, because they a) can sing better, b) have more control over their albums (AI doesn't dictate what they can sing or how it gets produced), and c) therefore better songs, or at least songs they are better suited to sing, get on their albums.

Note that to try to deal with the last point, the judges practically fell over themselves this season to tell the voting audience as bluntly as possible who they thought needed to go and who should stay in an apparent effort to ensure that one of their favored singers actually won this time. They became so transparent about it, that Paula got caught offering judgment about a song that hadn't yet been sung, casting the wizard's curtain wide open.

The above factors are causing audience disenchantment, and eating into viewership.

Are these predicted results actually happening? If so, how are they manifesting?

Viewership in 2008 was down an astounding 7% from 2007

In a year where the two stars were considered "hot" guys, the primary viewing audience of women aged 18 to 34 was down by 18%

The median age continues to skew ever upward, from mid 30s a few years ago, to 42 today. Hardly the prime music buying age group.

The over 50 age group has increased in viewership.

All this suggests increasing irrelevance to the trendsetting youth audience, boredom among core fans, and disenchantment and disenfranchisement from the process. Typically when this sort of thing begins, it is irreversible because by the time executives acknowledge it is a serious problem (whether the product is a tv show, a newpaper, or a me-too generic cell phone, it's too late to make the major changes necessary to right the ship.

Will American Idol will take my advice? There's no doubt they have to do something and we're highly likely to see some changes next year, but the question is, how will they diagnose what's going on, and therefore come up with appropriate solutions. (It's at this point that I should helpfully point out that if they want to get the skinny on how to counter this disruption before it kills the show, I'm available as a consultant.) Here's a little free advice:

The dynamics are old, and some highly visible changes are necessary. First to get the shake up should be the judging crew. Only Simon is core to the program -- it's time for Paula and Randy to go. Besides, the show needs more authenticity, and you can always count on Simon to say what he thinks in an entertaining way.

Sacrifice some of revenue stream from voting to create a system that isn't as vulnerable to manipulation (people need to believe that their votes are meaningful if they're going to keep paying attention and spending money to vote).

Recognize that music trends don't stay the same forever. There was a minor nod in this direction this year as David Cook got more kudos and promotion from the judging crew as the show progressed. The interesting thing about him was that he already sounded like a lot of what's on the radio, and his looks and personality didn't hurt either, so it was easy to imagine him as the winner.

Jason -- CATS is sung by Cats?! -- Castro

Most of the material that gets sung on the show is from a time before these kids were born (was it such a big surprise that Jason didn't know that CATS showstopping Memory was sung by an old dying female cat?), so it isn't that surprising that it's more popular with people older than 50 than with teenagers and 20 somethings. It would help the producers to look at this from a "jobs to be done" perspective, rather than a "what we want to sell" perspective. The job to be done is to engage the youth audience (primary music buyers), identify a new "star" that they relate to, and create records that are current and interesting to that audience. Like Chris Daughtry did (but then, he had the advantage of being voted off and picking his own band and music -- hmmmm.)

Understand that superstar singers and bands sing hit songs. After spending most of the season telling contestants that song selection is critical, how much sense does it make to give your winner songs which don't fit their style (make a blues guy sing a sugary pop song, for example), or which are simply crap (letting amateur song writers write stuff that is total trash musically and lyrically) and then asking a newly minted winner to make it a hit song is absolutely nuts.

One possible voting system that could work better would be to count song downloads from iTunes in the 24 hours following the performance show. Even if it cost the same as texting in a vote, the fact that you get the song with it would be a big discouragement to VFTW, and iTunes doesn't let you buy the same song twice (at least not easily).

These are some easy big things that would make things more authentic, freshen things up, and introduce some sustaining innovations to counter the disruption to American Idol's artful guise. There are several smaller things as well, but the above would be a healthy start. If not, watch for even bigger declines next year, and a franchise that may not recover from disruption.

November 14, 2007

Up to now, the Wall Street Journal has been one of the very few media outlets able to sustain a paying audience for its electronic version. They were able to do so because a) it was priced reasonably as an add-on to a paid newspaper subscription, and b) because of their unparalleled authority and quality of writing and research. Basically, the WSJ brand was what enabled them to charge for it when no one else could.

But, long term, that was a losing battle. Traditional journals have been slow to react to the changes wrought by blogging and social media, and even TV, cable and other media before that, and have been on a steady downhill decline for decades. It is very uncommon to see someone in their 20s or 30s reading a "real" newspaper, and the trust gap has been rapidly closing with the younger generation now considering newspapers and blogs on par.

In a very real sense, the print journal readership is dieing off, and as those in their 60s, 70s and even 80s take their subscriptions to the grave, they aren't being replaced with new readers. Holding out even this long to make basic changes to their business model has put at risk the very foundations of their business, namely the relevance and brand recognition that could sustain a future.

My partner at The Disruption Group, Mike Urlocker, has written extensively about disruption of traditional print media, so I will simply refer you to the lengthy list of analysis of this phenomenon that we've already done on the subject below:

It has been inconvenient for me, as a blogger, precisely because the WSJ stories often offer better information than other sources and a different take on the news, and so although I've referenced them, links to their articles have only been available to those who already had a paid subscription or who were willing to pony up to read that article. But yesterday, that all changed in a brilliant stroke of business strategy between an old titan and a new one.

Digg Makes Wall Street Journal Online Edition Free

As of yesterday, the Wall Street Journal now adds a Digg widget to the end of all their online articles. And, any article that gets 'dugg' will be available to read for free if you go through Digg's site to get there. The online journal is still a pay-to-read site, but this loophole ensures that anything I want to reference will be available to my readers, because all I have to do is Digg it. Ultimately, that means the online WSJ is now free, as long as every article gets dugg at least once. But, it also means that Digg gets a huge wallop of credibility and traffic thanks to the Wall Street Journal, and a whole new business audience. And, the Wall Street Journal maintains some vestiges of its walled garden, but will have sudden street cred and accessibility with bloggers because of Digg. Wow. I wonder if this deal has anything to do with Murdoch's pending takeover of Dow Jones -- it certainly is one of the smarter and more aggressive plays for a traditional media player to finally enter the new world.

This is a classic example of what Christensen labels "cramming" in his discussion of disruption theory. Basically, incumbents often ignore disruptions until it is too late to do anything about it, and then make valiant attempts to "cram" the disruptive innovations into their existing offering to try to forestall or block the disruption. This can be accomplished through a purchase or merger (e.g. when Time Warner and AOL conjoined), or as in this case, by incorporating the new thing into the old in a way that is a bit kludgey, but offers a strong mutual benefit and breaking down of the walls.

Most crams eventually fail. The disruption either still wins because the business models are incompatible, or they eventually subsume the old business into the new and the vestiges of the old simply die off. AT&T, for example tried various crams (buying NCR, buying cable networks, starting and then selling a mobile phone business, etc.) before selling each off and destroying hundreds of billions of dollars of shareholder value. AT&T very nearly died in the process, and it was only the merger back into its former spin-off baby bell that saved the AT&T brand from extinction. And, it still may not survive.

This cram, however, makes big sense for both sides, especially as an important signal by the Wall Street Journal that it will be a significant social media player. Still, it will depend on what they do next. Print, and the capital that is tied up in buildings, printing presses, distribution networks, and massive staffs (most of whom aren't necessary in the new blogging world) is an albatross that makes all newspapers unable to effectively compete against the low-end disruption of blogs. Even the venerable Wall Street Journal with its quality, brand and history can't survive forever if its subscribership continues to decline and advertisers either go elsewhere or demand lower rates or both. They still need to fundamentally rethink their business model and make much more significant changes in the very near term, or this could also be a signal of the beginning of the end.

But I think Murdoch is smarter than that, and I look for more exciting and surprising changes to come.

Significantly, there is no mention of this deal to be found in the Wall Street Journal itself (strange that they said nothing, but let every other major news outlet report it), or I would have dugg the article so I could insert it here to show you, however, the folks at Digg didn't ignore the news.

November 12, 2007

That's a rhetorical question. But, in a sense, the answer is yes. At least for me.

A few weeks ago I managed to break my foot by doing nothing more extraordinary than walking on it. I wish the story was more exciting, but I can't imagine a more dull and uninteresting way to break a foot.

There I was, packing for a business trip to Toronto when I stepped towards my suitcase and heard a loud, sharp crack, like a good-sized branch breaking, and next I knew I was on the floor in a lot of pain.

So, we went to emergency, spent about 4 or 5 hours to have a nurse practitioner confirm after looking at x-rays -- "Yup. You broke it", and then bring me a pair of crutches and a goofy looking styrofoam shoe, with instructions to see a foot doctor in the next two days. And, for all their trouble, they sent me a bill for over $2,000. Now, don't you wish your product or service had demand that was so inelastic that you could charge virtually anything for doing almost nothing? That is a business in serious need of disruption!

On to Toronto

So, I got home around 2:30am, and still had to finish packing to get to the airport first thing in the morning. You see, it wasn't just that it was too late to call anyone and postpone the trip, but it was an important strategy meeting, and people were coming from Ireland, so it would have been very costly and aggravating for everyone to cancel. Anyway, it gave me an excuse to do what I thought was the right thing.

I'm going to skip the gory details of travelling with a broken foot that isn't in a proper cast yet, because I'm going to have another post just to talk about the incredibly miserable service I got from an assortment of airlines (not just to Toronto, but in a subsequent trip to Portugal as well), and how poorly people with a handicap are treated. It was a real eye-opener, and I'm quite fortunate that in a few weeks, I'll be back to normal -- for many this is a permanent way of life. I had no idea how frequently the needs of people with handicaps are either simply ignored, overlooked and disregarded, or, that there's a seamy underside that looks to take advantage of people who need help. More on that in a future post.

So, in Toronto I learned to use the crutches, and narrowly avoided a face-plant on freshly cleaned marble floors thanks to the strong arms of two guys that were walking with me. Strangely, although marble is one of the most deceptive and slippery surfaces when wet, the cleaning staff apparently didn't see the need to put out signs warning that the floors were wet. Hmmmm. Basically, Toronto was a dry run for what it would be like flying to Portugal the following week to do a keynote address at the International Marketing Congress. I survived with the sponge slipper for a couple of days, and didn't break anything else, so we'd have to say that was a successful trip. Oh yes, the meetings were good too.

And then Portugal

As soon as I got home from Toronto, we got to a doctor and had the foot looked at. Surprisingly, he too confirmed that the foot was broken and charged me an additional $360 for that information. He wanted to put me in a full cast right away, but when he heard that I needed to travel to Portugal, he shook his head (I think in disgust and disbelief -- obviously he thought it was a mistake and that I should simply accept my fate and be immobilized for 6 weeks right then and there) and offered a temporary Air-Cast, which for all the world looks like a Robocop appendage. See picture. Oh yes, and another $250 in the meter for that. Neat contraption, in that it allowed me to deflate the airbags inside and/or loosen the straps as my foot and leg swelled on the plane. They advised me that if I didn't do this, there was a good chance my leg would need amputation by the time I got to the other side, and that was the reason not to put a proper cast on at that time. When all was said and done, we'd spent another half an hour, and another approximately $800 for almost nothing. Who needs the mafia when we can simply visit a doctor?

The Air-Cast did make me a little more mobile, and certainly protected my foot better than the sponge slipper, but it was truly a hulking and inconvenient thing to have to wear.

Of course, the whole point of this story was to get to Portugal. It was my first trip there, and despite the foot, it was an immensely enjoyable visit. The people were great, the food was great, the wine even better, the seaside was great, my hotel was nice, the culture was very comfortable, my hosts were gracious and welcoming. In fact, the only downside was the whole airport experience. Another industry in serious need of disruption, although not so much on the cost-saving low end -- this is already a well-served space, and the corners being cut are apparent everywhere. Oh well, as I said, a future post.

Disruption Point

Appropriately enough, the conference title was The Disruption Point, and my keynote put forward the thought that Disruptive Innovation doesn't happen without Disruptive Marketing, using some case studies and graphed results from The Disruption Group's disruption scorecard tool. That's something I'll be exploring here in more detail in the coming months, so I won't dwell on that now, but I thought as I was delivering my talk how ironic/appropriate it was that I was delivering a talk about innovation, marketing and disruption while I was disrupted in a wheelchair. And, how unique. I don't recall ever seeing a keynote address done from a wheelchair before, although I'm certain someone has at some point, if only at a conference for those bound to them. I suspect many speakers would have cancelled, but I had put a great deal of thought and effort into this and wanted to see how the audience reacted. I also wanted to go to Portugal, so the location definitely benefited the organizers.

What was especially interesting for me was to get a European view of disruption and innovation. The growing strength and especially the single market opportunity for the EU seems to have spawned a new spirit, willingness to take chances, ambition to grow, recognition of opportunities at home and around the world. In short, European capitalism seems to have new life and there is some great energy over there, and desire to learn and try new things.

In contrast, the US seems to be a litte bit on the ropes in comparison. I think we are weary of the Iraq war, the falling dollar and rising prices, especially for oil, fighting terrorism, dealing with airport hassles, the hangover from all the corporate fraud and Sarbanes-Oxley compliance, the failing mortgage market and the toll it is taking on banks and homeowners, encroachment on freedoms that we have always taken for granted in the name of "enhanced security'" (an oxymoron if ever there was one). Basically, virtually everything is in the dumps at the same time. We need a good recession and some political and economic housecleaning to clear out the fog and get back on track.

But, I digress.

Again, in a near future post, I will give a review of some of the other interesting Disruption Point presentations at the International Marketing Congress. Suffice it to say that I was pleasantly surprised at the depth and quality overall. Although there were the obligatory sales pitch presentations from a few, overall this was a much more informative and well-assembled conference than I often see stateside. I really enjoyed meeting a number of the other speakers, and I think we will stay in touch and continue to share insights. It definitely helped build out my network some.

I especially enjoyed chatting with the president of the French National Marketing Association, Francois Laurent. He is a crusty guy with a train of thought at least equal to the controversy I cause, as you might discern from his blog and upcoming book title "Marketing is Dead". Here's what he had to say about the conference (automatic translation to English version here). I've been invited to write a guest post on his blog, and I'm hoping he will do the same for me. We'll let you know when that happens.

My presentation was well-received and despite the disruption, the trip to Portugal was very worthwhile.

Home of Disruption

So now I'm safely home, have a full cast on my foot, and am already chafing to get rid of it. It's certainly no fun trying to do anything from visiting the restroom, to going up and down stairs, to getting dressed, to bathing, to going out anywhere. As I said in a recent email, I can't believe that we can send miniature cameras inside someone's heart and do robotic surgery controlled by a doctor 1,000 miles away, yet when it comes to healing a broken bone, we still have this archaic and inconvenient 150 year old technology to fix things. I could have arthroscopic knee surgery, or laser eye surgery, and be back to 100% in a few days, but break a bone, and your life will be disrupted for at least 6-8 weeks.

October 06, 2007

What I thought about on my summer holiday?! Of course, I'm way overdue for a post, even for a "what I did while I was away" post. As usual, thank you to my loyal readers for your patience. I have a backlog of ideas percolating, and hopefully I will have time to get to a few of them in the near future.

To get back into the swing, I thought I would recap some observations and thoughts from my time away, and direction I intend to be going over the next few months as a result.

It's funny, but when things slow down, and you simply observe and think for a while, some things become obvious that were always staring you in the face, and things you've previously observed and thought (and written) about either prove themselves true, or new insights percolate to the surface.

The Never-Ending Circle

In the category of "proving themselves true", predictions about the popularity of the iPhone and its likely success were pretty close to bang on, with Apple announcing 1 million sold just 74 days after the initial release. While many may have expected more sold, this is about the top end of what one would expect for a disruptive product. The usual pattern is to seep into the market relatively slowly and then really take off as subsequent versions add features and correct problems, becoming good enough for more and more people until they reach the tipping point and explode into mass market consciousness. With the unparalleled hype about the iPhone, it's not surprising that it was strong out of the gate, despite many noted complaints about all the ways it wasn't up to snuff (also very common for new disruptive products).

We also discussed the likelihood of a family of mobile handhelds using the iPhone platform, and already we have the next generation iPod, which not surprisingly is an iPhone without the phone. Along with that new product came a brilliant move of partnering with Starbucks to offer free Wi-fi access at any of their locations. It's actually pretty smart for both sides, because the days of charging for a Wi-Fi connection are almost over, and this is a way for Starbucks to be a bit ahead of the curve and benefit from the glow that surrounds the iPod and iPhone.

Watch for iPhone Sr. coming soon to an Apple store near you -- I expect it will be outfitted as a true business-oriented handheld, with connectivity to corporate systems, better security, more horsepower, a suite of office applications (note that Apple's iWork product was also upgraded over the summer to offer a spreadsheet tool for the first time and integration with Office 2007. With the "holy trinity" of word processing, presentations and spreadsheets now covered, the Mac becomes a lot more viable as a PC replacement, and will suddenly be "good enough" for many who've been waiting for a real Microsoft alternative, and the iPhone also gets closer to being a viable substitute for the notebook, especially for road warriors tired of airport security hassles. Don't know if we'll get it before Christmas, but I promise, the writing is on the wall.

Microsoft is probably wondering about some of the horrible mistakes made in Office 2007, such as imposing the "Ribbon" interface on power users who not only don't need it, but find that it slows them down. Personally I don't like it because it is a big keystroke waster, makes it hard to find all the things you knew, and it wastes a ton of screen real estate. Not offering an option to use the old menus or the keyboard interface was a really bad idea.

Microsoft's Office 2007 "ribbon". Seriously, someone thought this inelegant, productivity-sucking mess was an improvement! Click for a larger version if your stomach can handle it.

Although the XML underpinning was a great idea, it also makes it easy for someone like Apple who is better at tools to eat Microsoft's lunch, and with such a huge change in the interface, there's plenty of incentive, and what has anyone got to lose by giving Apple's products a try? It's a classic case of overshooting the users' needs on the one hand, and not fulfilling them on the other. And, it's the kind of arrogant decision that could only come from going so long without real competition. Ripe for disruption indeed!

It's also been noted that Apple's first OS upgrade for the iPhone turned some people's hacked toys into iBricks. I will be addressing that in a future post.

Relationships

For many, summer is a time to re-connect with family and think about relationships. Of course, we did that too, and got to attend that rarest of events -- my parents' 50th wedding anniversary. Even more amazing, my wife's parents celebrated their 50th a couple of years ago. How many people can say that their parents and in-laws are not only still all alive, but have both managed to stay together for 50 years? There must be a pot of gold at the end of a rainbow somewhere.

And, check out the picture. Gotta love the skinny people and skinny ties. They just don't make them that way any more.

In the category of "growing realization of the obvious", there's another sort of relationship that comes to my mind. Namely, the relationship between marketing and disruptive innovation. With a couple of decades of technology marketing experience behind me, and a current focus on disruption, you'd think I would have spent more time considering the connection. It's a relationship that's lived in my head without expression.

Strangely, Christensen comes close to alluding to it a few times in his books, but never really addresses it. In fact, it's almost as if all those innovations that he describes were so obviously fantastic products that they grew to dominate markets without anyone making the smallest effort to target the right niches and make them appealing to customers.

I've been developing a theory about that relationship, and looking for the evidence to test it. It's a simple but profound notion. Namely, that disruptive marketing is the secret sauce that takes the potential of a disruptive innovation and turns it into a reality. Yes, there are accidents along the way, and occasionally disruption happens without intent, but it's become increasingly clear to me, both by looking at missed opportunities for disruption, and at products that succeeded in turning the tables, even against the odds, that disruptive marketing is a necessary component.

I will be delving into this idea in more detail over the next several months with case studies, examples, definitions, and description of how disruptive marketing works. I hope to elicit a healthy discussion around this idea and get "war stories" from marketers about how they did it, and what disrupts versus what is plain vanilla.

Upcoming Presentation

Carrying on with this idea, I will be making a keynote address to the International Marketing Congress in Lisbon in a few weeks. The conference theme is The Disruption Point, and I will be addressing the connection between Disruptive Innovation and Disruptive Marketing. This will be the first public forum where I will be presenting my theories and observations, and I'm looking forward to a great discussion and debate.

More Books

Several books crossed my desk this summer, and I know that I fell asleep reading at least three of them. Lot's of good stuff to talk about there too, but, for now, here's a list -- click on any of them to find your own copy at Amazon.